Extended Annual Review Report

Project Number: 38920 (Phase 1)

40918 (Phase 2)
42919 (Phase 3)

Loan/Investment Number: LN 2098 (Phase 1)

LN/GU 2241 (Phase 2)
41 (CFS)
LN 2431 (Phase 3)

December 2011

Loan, Complimentary Financing Scheme, and Political

Risk Guarantee
Afghanistan: Roshan Cellular Telecommunications
Project, Phases 1–3

In accordance with ADB’s public communication policy (PCP, 2005), this extended annual review report
excludes information referred to in paragraph 126 of the PCP.
 CURRENCY EQUIVALENTS
Currency Unit – afghani/s (AF)

At Appraisal At Project Completion

31 July 2004 31 December 2011
AF1.00 – $0.022 $0.021
$1.00 – AF45.22 AF48.64

ABBREVIATIONS
ADB – Asian Development Bank
ARPU – average revenue per user
ATRA – Afghanistan Telecom Regulatory Authority
AWCC – Afghan Wireless Communications Company
BTS – base transceiver station
CFS – complementary financing scheme
DEG – Deutsche Investitions- und Entwicklungsgesellschaft
EBITDA – earnings before interest, taxes, depreciation, and
amortization
EROIC – economic return on invested capital
FIRR – financial internal rate of return
GSM – global system for mobile communications
IT – information technology
PCO – public call office
PRG – political risk guarantee
RRP – report and recommendation of the President
TDF – Telecom Development Fund

GLOSSARY
General packet radio – Mobile data transfer service used for access to the internet,
service communication services such as e-mail, and the web
Global system for – System where both signaling and speech channels are digital
mobile communications call quality
Subscriber identity – Provides secure storing of the key identifying a mobile phone
module service subscriber, as well as subscription information,
preferences, and storage of text messages

NOTES
(i) The fiscal year (FY) of the Telecom Development Company Afghanistan ends on
31 December. FY before a calendar year denotes the year in which the fiscal
year ends, e.g., FY2000 ends on 31 December 2000.

(ii) In this report, "$" refers to US dollars.

Vice-President L. Venkatachalam, Private Sector and Cofinancing Operations
Director General P. Erquiaga, Private Sector Operations Department (PSOD)
Director M. Barrow, Infrastructure Finance Division 1, PSOD

Team leader T. Minnich, Senior Investment Specialist, PSOD

Team members R. de Leon, Project Analyst, PSOD
S. Durrani-Jamal, Senior Economist, PSOD
J. Gomez, Safeguards Officer, PSOD
M. Manabat, Senior Investment Officer, PSOD
M. Pateguana, Young Professional, PSOD
B. Quang, Safeguards Specialist, PSOD
M. Tsuji, Principal Safeguards Specialist, PSOD

In preparing any country program or strategy, financing any project, or by making any
designation of or reference to a particular territory or geographic area in this document, the
Asian Development Bank does not intend to make any judgments as to the legal or other status
of any territory or area.
 CONTENTS

Page

BASIC DATA i

EXECUTIVE SUMMARY 1
I.  THE PROJECT 3 
A.  Project Background 3 
B.  Key Project Features 4 
C.  Progress Highlights 4 
II.  EVALUATION 4 
A.  Project Rationale and Objectives 4 
B.  Development Impact 5 
C.  ADB Investment Profitability 7 
D.  ADB Work Quality 7 
E.  ADB’s Additionality 8 
F.  Overall Evaluation 8 
III.  ISSUES, LESSONS AND RECOMMENDED FOLLOW-UP ACTIONS 9 
A.  Issues 9 
B.  Lessons and Recommended Follow-Up Actions 9 

APPENDIXES
1. Private Sector Development Indicators and Ratings: Infrastructure 11
2. Social Impact 14
 BASIC DATA

Roshan Cellular Telecommunications Project, Phases 1–3

(Loan Nos.2098/2241/2431, CFS41 - Afghanistan)

Key Dates Expected Actual

Concept Clearance Approval 25 Jun 2004 (1)
23 Feb 2006 (2)
16 May 2008 (3)

Board Approval 4 Nov 2004 (1)

29 Jun 2006 (2)
28 Jul 2008 (3)

Loan Agreement 16 Mar 2005 (1)

16 Jul 2006 (2)
12 Aug 2008 (3)

Loan Effectiveness 12 May 2005 (1)

16 Jul 2006 (2)
16 Aug 2008 (3)
21 Jun 2009 (PRG)
5 Sep 2006 (CFS)

First Disbursement 16 May 2005 (1)

22 Sep 2006 (2)
4 Sep 2008 (3)
21 Jun 2009 (PRG)
21 Sep 2006 (CFS)

Loan Closing 16 Sep 2006 (1)

16 Jan 2008 (2)
18 Feb 2010 (3)
16 Jan 2008 (CFS)
CFS = complementary financing scheme, PRG = political risk guarantee.
Source: Asian Development Bank.

Project Administration and Monitoring No. of Missions No. of Person-Days

Fact-Finding 1 12
Appraisal 1 6
Project Administration 4 8
XARR Mission 2 8
Others 4 18
XARR = extended annual review report.
Source: Asian Development Bank
 EXECUTIVE SUMMARY

Roshan Cellular Telecommunications project, approved by the Asian Development Bank

(ADB) in 2004, was the first corporate financing to close in Afghanistan in about 30 years, due
to the challenging political and security environment. Decades of conflict devastated
Afghanistan’s communications systems and the arrival of mobile phones in 2002 represented a
telecom revolution. 1 The $35 million direct loan aimed to finance the nationwide expansion and
upgrade of the leading Global System for Mobile Communications (GSM) network. This consists
of a nationwide cellular telephone system, public call office services, international gateway, and
internet service provider operations; all critical to aiding communication for broader
reconstruction of the economy. Building on the success of the first phase of Roshan
expansion, ADB subsequently approved two additional facilities to support the second and third
phases of expansion. The second phase loan was approved in June 2007 and consisted of a
direct loan of $35 million, a complementary financing scheme consisting of $22.39 million (B
loan) and a political risk guarantee of $7.21 million. ADB approved a third loan of $60 million
and a political risk guarantee of $10 million in July 2008.

This extended annual review report (XARR) evaluates ADB's assistance in phases 1, 2,
and 3 of the project. 2 The evaluation criteria for this review are based on the Project
Administration Instructions (PAI) 6.07b on Extended Annual Review Reports for Nonsovereign
Operations issued in July 2008. The XARR evaluates the following dimensions of nonsovereign
operations: (i) development impact and outcomes, (ii) ADB investment profitability, (iii) ADB
work quality, and (iv) ADB additionality. 3

Overall, Roshan is rated highly successful, based on the following conclusions:

(i) Development impact and outcomes. The private sector development impact is rated
excellent. Roshan’s subscriber base grew from 158,000 in 2004 to 5 million in 2011. In
2007, Roshan’s mobile services were mostly limited to 27 provinces, including coverage
in 105 urban centers. In 2011, coverage had been extended to about 230 cities and
towns across the country's 34 provinces, covering 60% of the population. The project
also promoted innovative services, including M-Paisa (mobile money transfer) and
Malomat (mobile agricultural trade data service). As of March 2011, M-Paisa had
181,311 subscribers. Roshan has become the largest private investor and taxpayer in
Afghanistan, accounting for about 5% of the Afghan government's overall revenue in
2010. In addition, the project contributed to job creation (97% of Roshan’s staff are
Afghan nationals and 20% are women) and setting of industry standards. The project is
rated satisfactory for business success and excellent for economic sustainability. Other
development outcomes, such as environmental, social, health, and safety are all rated
satisfactory.
(ii) ADB’s investment profitability. ADB’s investment profitability is rated satisfactory.
Interest payments were made on time, and the direct loan for Phase 1, and the loans
under the complementary financing scheme (CFS) and political risk guarantee (PRG)
1
The incumbent operator, Afghan Wireless Communications Company (AWCC), was the first operator to
launch mobile services in Afghanistan.
2
It is based on the findings of the Extended Annual Review Mission fielded in September 2011, and on
information gathered from project files, ADB Board documents, audited financial statements, and
related operation and business reports.
3
The development impact of Roshan is further rated according to the following criteria: (i) private sector
development, (ii) business success, (iii) economic development (economic sustainability), and (iv)
environmental, social, health, and safety performance, in accordance with the July 2008 PAI.
2

coverage have all been fully repaid as of 21 June 2011. The final repayment for the
Phase 2 direct loan is scheduled for June 2012, and the Phase 3 direct loan for
September 2014.
(iii) ADB’s work quality. The screening, appraisal, and structuring were effective and are
rated satisfactory. The ADB appraisal team clearly identified the key strengths of the
company. In addition, ADB closely tracks Roshan’s progress, highlighting recent
developments, and monitoring actions, key project milestones, key risks, and
development impact assessment.
(iv) ADB’s additionality. ADB’s additionality, in terms of political risk mitigation and financial
additionality, is rated excellent. ADB played a crucial role in providing a direct loan and a
PRG, to catalyze commercial financing. ADB used many of its financing instruments to
aid Roshan’s growth. Without ADB participation the expansion program would likely
have been scaled down and/or delayed. ADB’s participation in Phase 2 mobilized some
of the first medium-term, international, commercial bank financing for Afghanistan in
many years. ADB's added value, particularly in loan processing for phases 2 and 3,
stems from its experience and expertise in the country, which gave other lenders the
confidence to participate in the transaction.

Despite the challenges, Roshan’s key competitive strengths include (i) an installed
network, (ii) the widest coverage, (iii) a strong market position, (iv) established distribution, (v) a
regional office presence, (vi) seasoned leadership and management with Afghanistan
operations experience, and (vii) an established brand. Roshan has been keen to promote best
industry standards, and as a result has received a wide range of awards, including Best Quality
of Service (2010, Afghanistan Telecom Regulatory Authority) and the First ISO-9001
Certification in Afghanistan for customer care.

The main lessons ADB can draw from the project are that unmet demand and
liberalization have been the key drivers of growth. Fierce competition coupled with rapid
subscription growth resulted in a significant decline in ARPU. In addition, ADB played a catalytic
role in mobilizing financing from commercial sources. Therefore, it is recommended that (i)
estimations of demand potential should consider that demand is likely to outstrip projections, (ii)
revenue potential should be derived from next generation and value-added services, (iii) the
project should continue to establish close working relationships with communities in order to
mitigate the security risk, and (iv) ADB should promote the use of guarantees to catalyze
financing in fragile and conflict-affected countries.
 3

I. THE PROJECT

A. Project Background

1. Roshan is the leading player in mobile telecommunications in Afghanistan. Roshan is a

private limited liability company, fully owned by the Telecom Development Company
Afghanistan, a Dutch holding company, which in turn is owned by the Aga Khan Fund for
Economic Development (AKFED) (51.00%), Monaco Telecom International (36.75%), and
TeliaSonera (12.25%). The Asian Development Bank (ADB) has assisted the company’s growth
in a phased manner. In November 2004, when ADB approved the Phase 1 loan for the first
substantial network expansion, decades of conflict had devastated Afghanistan’s already-
challenged communications systems. Fixed telephone lines were virtually absent, in a country
with rugged terrain, high mountains, and wide deserts. In 2004, telecommunications services
were provided by two mobile operators: Roshan, and the state-run fixed-line operator, Afghan
Wireless Communications Company (AWCC), 20% of which was owned by the Ministry of
Communications. Roshan estimated that in June 2004 penetration rates 4 for fixed-line
telephones were 0.08%, mobile phones 1.20%, and satellite phones 1.00%. Satellite phones
were very expensive, with call charges 20 times higher than mobile phones for local calls.
Roshan was awarded a national license to provide Global System for Mobile Communications
(GSM) services in 2003, 5 launching its service later that year, and by 2004 had overtaken
AWCC in terms of market share.

2. Prior to receiving ADB assistance, Roshan financed its start-up and initial rollout through
shareholder funds and finance provided by equipment vendors, which was of limited availability
and relatively expensive. The first loan of $35 million, issued in late 2004, aimed to finance the
expansion of the customer base from 158,000 to 1 million by 2010, and to expand the network
beyond the major cities to a majority of the country’s provinces. The second loan of $35 million
was supplemented by a complementary financing scheme (B loan) of $22.39 million and an
ADB political risk guarantee (PRG) of $7.21 million. It aimed to expand the availability of
services to all 34 provinces. In 2008, ADB approved a Phase 3 direct loan of $60 million and a
PRG of $10 million. This covered a proposed Deutsche Investitions- und
Entwicklungsgesellschaft (DEG) facility, aimed at helping address unmet demand for
telecommunication services in semi-urban and rural areas, and expanding the provision of
ancillary services such as mobile banking. In 2009, ADB cancelled the PRG when DEG decided
not to participate in Phase 3. ADB anticipated this potential financing gap in the $60 million
direct loan approval.

3. The Phase 1 expansion was the first ADB-assisted private sector infrastructure project in
Afghanistan and also the first private initiative in Afghanistan’s telecommunication sector. The
other senior lenders were the Société de Promotion et de Participation pour la Coopération
Economique (PROPARCO) (phases 2 and 3), DEG (Phase 2), and commercial banks (Phase 2
complementary financing scheme [CFS]). In 2011, Afghanistan’s mobile penetration was
estimated to be approximately 48%. 6 The government intends to continue with its modernization
and telecommunication expansion strategy, and recognizes the importance of creating the right
conditions for private sector investment by accelerating the establishment of a transparent
regulatory and market environment.

4
The penetration rate is defined as the number of active subscribers.
5
According to a bid process overseen by the World Bank and the World Bank-funded consultant, Bearing Point.
6
Roshan and Asian Development Bank, 2011.
4

B. Key Project Features

4. ADB’s investment has enabled Roshan to increase access to and improve the quality of
mobile services. Phase 1 entailed the expansion and upgrade of the GSM network, comprising
a nationwide cellular telephone system, PCOs, an international gateway, and internet service
provider operations. The equipment was initially supplied by Alcatel and Siemens, and replaced
later by Huawei, which has lower lifecycle costs and more configuration flexibility. Phase 2
included the construction of a synchronous digital hierarchy (SDH) 7 fiber-optic microwave ring,
and the increase of capacity in existing cities. Phase 3 increased further the number of base
transceiver stations (BTS) and consolidated the construction of the SDH fiber-optic backbone. In
addition, the project introduced new services such as M-Paisa. 8

C. Progress Highlights

5. Roshan outperformed its expansion plans and reached subscriber targets faster than
anticipated (tables 1 and 2). Underserved markets and untapped demand were the main reason
for this rapid subscription growth. The rollout targets from the initial business plan were met
ahead of schedule: the initial 2006 projections were met in 2005 and the revised 2006
projections were comparable to the initial 2011 projections. Roshan continues to outperform the
rollout targets, particularly the average number of subscribers. The company reached 5 million
active subscribers in May 2011. No major delays were experienced during implementation.

Table 1: Comparison of Rollout Targets (phases 1 and 2)

Phase 1 (2004–2010) Revised
Initial Projections Achieved Projections Achieved
FY07 FY05 FY07 FY07
Afghanistan penetration rate (%
5.80 4.60 11.90 12.40
of population)
Average number of Roshan
0.69 0.85 1.13 1.18
subscribers (million)
Sources: Asian Development Bank and Roshan.

Table 2: Comparison of Rollout Targets (Phase 3)

Phase 3 (2008–2014)
Initial Projections Achieved Projections Actual Figures
FY08 FY08 FY11 FY11
Afghanistan penetration rate (%
19.70 28.20 35.50 48.00
of population)
Average number of Roshan
2.58 2.84 4.58 5.19
subscribers (million)
Sources: Asian Development Bank and Roshan.

II. EVALUATION

A. Project Rationale and Objectives

6. The Roshan Cellular Telecommunications Project (phases 1, 2, and 3) achieved the

development impact objectives described in the RRP: it has (i) served as a positive example,
encouraging financial institutions and commercial sector lenders to support private sector

7
A fiber-optic transmission system developed for high speed digital traffic.
8
A mobile-phone money-transfer application that allows individuals to send money using their mobiles to other
subscribers (including non-Roshan customers) as well as to receive money from other Roshan mobile users,
receive and repay loans from microfinance institutions, pay for goods and services, receive and disburse salaries,
and purchase Roshan airtime.
 5

development in Afghanistan; (ii) improved the business climate through wider coverage and
better quality telecommunication services; and (iii) promoted local industry and commerce
through provision of microcredit and mobile banking for people living in remote areas without
access to banking facilities.

B. Development Impact

1. Private Sector Development

7. The impact of the project on private sector development is rated excellent.

8. Private sector expansion. As a result of Roshan’s success and its strong

demonstration effect, the telecommunication market has received far more direct investment
than any other sector. In 2004–2006, it is estimated that 10–20% of the Afghan government’s
domestically generated revenues were derived from license fees, import duty, and tax payments
made by telecommunications operators. Roshan has become the largest private investor and
taxpayer in Afghanistan, accounting for about 5% of the Afghan government's overall revenue in
2010. The sector has also received additional investments through the Telecom Development
Fund (TDF) which was created in 2006 to promote the expansion of telecommunications to rural
and remote areas. Operators were required to pay 2.5% of annual revenues into the fund, and it
is estimated that they have contributed $70–75 million to the TDF. 9

9. Competition and expansion of access to mobile telecommunications. At the time of

loan processing for Phase 1, the market was dominated by two operators. Given the public
demand and the success of Roshan, in 2005 the government tendered two new licenses, and
the market is currently served by four operators. South African-based MTN Group obtained a
license in September 2005 and launched operations in 2006. United Arab Emirates-based and
state-owned Etisalat obtained its license in 2006 and launched operations in 2007. As a result of
increased competition, mobile service prices have substantially decreased. The price of
subscriber identity module (SIM) cards has dropped from over $150 in early 2003 to about $1 in
2011. National retail tariffs have dropped from about $0.30/minute in early 2003 to about
$0.09/minute in 2011, with some operators offering promotional or off-peak national tariffs as
low as $0.03/minute. Based on the telecommunication sector outlook, without Roshan’s
expansion, Afghanistan would have experienced a modest improvement in access to
telecommunication services, and the sector would have remained less competitive and smaller.
Roshan’s subscriber base grew from 158,000 in 2004 to 5 million in 2011. In 2007, the
availability of Roshan’s mobile services was mostly limited to 27 provinces, including coverage
in 105 urban centers. As of September 2011, coverage had been extended to about 230 cities
and towns across the country's 34 provinces, covering 60% of the population.

10. Innovation. Roshan has partnered with First Microfinance Bank in a scheme under
which aspiring entrepreneurs can borrow capital to set up a PCO. Roshan established women-
only PCOs—an important feature in a culture where activities are often segregated by gender—
and the company is currently contemplating ways to improve this initiative. 10

11. In 2008 Roshan launched M-Paisa, a mobile money transfer and payment system. This
was the first and only Electronic Money Institution License awarded by the Central Bank of
Afghanistan. In a country where only 3% of people had a bank account in 2004, this brought
9
Roshan. 2011. Annual Review. Kabul
10
Although the project was designed to be used and managed exclusively by women, in some cases PCOs have
been misused by the beneficiaries’ male relatives. Roshan is reassessing this initiative.
6

financial transaction services to a wider population. As of March 2011, M-Paisa subscribers

numbered 181,311. For the first quarter of 2011 alone, about 100,000 completed transactions
(e.g. deposit, withdrawal, money transfer) were registered. 11 In 2009, Roshan launched
Malomat, which provided farmers, input suppliers, traders, and wholesalers with access to
commodity information in 13 provincial wholesale markets through text messaging. 12 As part of
the pilot phase, 500 farmers use the Malomat service.

12. Linkages and job creation. Roshan’s expansion promoted job creation during
construction and operation. In 2003, Roshan employed just over 50 people, of which 9 were
expatriates. As of September 2011, Roshan provided employment to over 1,200 people, of
which 97% are Afghan nationals and 20% are women.

13. Promotion of best industry practices. Roshan has received several awards, including
Best Telecom Brand of the Year (CommsMEA Awards 2006), Best Operator in a Developing
Market (Eighth Annual World Communications Awards 2006), Best Quality of Service (ATRA
2010) and Growth Engine in Mobile and Internet Services in Afghanistan (Voice & Data
Magazine 2010), as well as the First ISO-9001 Certification in Afghanistan for customer care.

14. Skills contribution. Roshan has contributed to building institutional capacity through
technical and management training for employees and collaborators. As of June 2010, 809
Afghan nationals had received functional and soft-skills training. In 2009, Roshan introduced the
Afghanization program aimed at promoting local staff. The emphasis has been on transfer of
technology and knowledge.

2. Business Success

15. Prior to 2006, Roshan enjoyed double-digit revenue growth, with a high of 635% in 2004;

16. The intense price war in the last two years has eased as Etisalat and MTN realized that
their pricing campaigns were not sustainable, and both financial and operational performance
has improved across the sector.

17. In 2011, the financial internal rate of return (FIRR) exceeds the average cost capital
(WACC) and therefore the project is rated satisfactory for business success. [CONFIDENTIAL
INFORMATION REGARDING BUSINESS SUCCESS HAS BEEN DELETED]

3. Economic Sustainability

18. The economic benefits from the capital expenditure program under phases 1–3 are
indicated by the consumer’s willingness to pay for the additional telecommunications services
brought about by the expansion of the infrastructure. The project is rated excellent for economic
sustainability. [CONFIDENTIAL INFORMATION REGARDING ECONOMIC SUSTAINABILITY
HAS BEEN DELETED]

11
In May 2011, M-Paisa won a Telecom Asia Award for Best Community Telecom Project for contributing to
socioeconomic growth in Afghanistan and promoting financial inclusion through salary payments for the unbanked.
Both Etisalat and MTN are expected to launch similar services with the support of the United States Agency for
International Development (USAID) by the end of 2011 under conditional licenses. AWCC is expected to launch its
mobile banking application in 2012.
12
This allowed farmers and traders to secure the best prices possible for their crops, enabling them to increase their
incomes.
 7

4. Environmental, Social, Health, and Safety Performance

19. The Roshan Cellular Telecommunications Project was classified as environment

category C as it did not have significant adverse environmental impacts. Roshan has put in
place satisfactory procedures for site selection, construction of BTSs, use and disposal of fuels
and hazardous materials (i.e. batteries), solid and liquid waste management, and minimization
of noise and air emissions during construction and operation of the diesel generators at the
BTSs. The project has also installed solar photovoltaic panels to power the telecommunication
towers, thus reducing diesel fuel consumption and greenhouse gas emissions in its operations.
As of September 2011, Roshan has connected 22 sites with solar power.

20. The project has been classified as category C for both involuntary resettlement and
indigenous peoples. BTSs were installed on leased lands in urban areas and sparsely
populated desert land in rural areas. 13 Sites were leased on a “willing lessor–willing lessee”
basis. The project did not have any negative impact on indigenous people. 14 In August 2011,
Roshan employed 1,210 permanent workers, of which 186 were women, and 93 temporary
workers, of which 65 were women. Roshan has complied with core labor standards as required
by ADB’s Social Protection Strategy 15

21. The project has successfully brought about incremental development outcomes,
including through social programs, particularly in the health and education sectors (Appendix 7).
Roshan has a corporate social responsibility program, with about 1% of its revenue allocated to
funding social programs.

22. Overall, the project’s environmental, social, health, and safety performance is rated
satisfactory.

C. ADB Investment Profitability

23. ADB’s investment profitability is rated satisfactory. [CONFIDENTIAL INFORMATION

REGARDING TERMS AND CONDITIONS OF ADB’S INVESTMENT IN THE PROJECT HAS
BEEN DELETED]

D. ADB Work Quality

24. ADB's work quality is rated satisfactory based on its (i) screening, appraisal, and
structuring of the project; (ii) monitoring and supervision; and (iii) role and contribution.

25. Screening, appraisal, and structuring of the project. ADB’s due diligence review
noted Roshan’s competitive strengths as (i) an installed network, (ii) the widest coverage, (iii) a
strong market position, (iv) established distribution, (v) a regional office presence, (vi) seasoned
leadership and management with Afghanistan operations experience, and (vii) an established
brand.

26. Monitoring and supervision. ADB closely tracks Roshan’s progress through
documents submitted by the company, site visits, direct interaction with executive management,

13
A typical BTS requires 144 square meters.
14
Although Afghanistan has a number of ethnic groups, such as the Aimaks, Baloch, Brahui, Hazaras, Hindkowas,
Kuchi, Pashtuns, Tajiks, Turkmen, and Yzbek, none of these ethnic groups were affected by the construction of
BTSs.
15
ADB. 2001. Social Protection Strategy. Manila
8

and interviews with the beneficiaries. Internal quarterly monitoring reports are prepared by ADB,
highlighting recent developments, monitoring actions, key project milestones, key risk issues,
and development impact assessment. During the project's operational phases, ADB has been
prompt in giving its consent for any amendments to existing agreements, subject to a thorough
review of the requests.

27. Role and contribution. The transactions were considered consistent with ADB’s
country partnership strategy (CPS) for Afghanistan for 2002–2004, CPS updates 2004–2006
and 2006–2008, and in line with the government’s strategic approach to reconstruction of
Afghanistan.

E. ADB’s Additionality

28. ADB’s additionality in terms of political risk mitigation and financial additionality is rated
excellent. Given the perceived country risk and the limited capacity of private political-risk
insurance providers for projects in the region, ADB’s political risk guarantee proved to be
extremely relevant. Being a direct lender and provider of PRG and CFS, ADB played a critical
role in mobilizing commercial financing. Without ADB assistance, the financial closure of
Roshan’s Phase 2 expansion would not have occurred in a timely manner. ADB used many of
its financing instruments to aid Roshan’s growth. Without ADB participation, the expansion
program would likely have been scaled down or delayed. ADB’s role was fundamental in
catalyzing financing in each of the three stages of Roshan’s network expansion, both from
international banks and from other international financial institutions.

29. ADB brought substantial value to the phase 2 and 3 senior lenders group, stemming
from its experience and expertise in Afghanistan, which gave the confidence to other lenders
and institutions to participate in the transaction. The project has strengthened ADB’s
relationship with AKFED and TeliaSonera, who are among the leaders in the region in
promoting sound governance, anticorruption, and gender inclusive employment.

F. Overall Evaluation

30. The Roshan project is rated highly successful. In Phase 1, Roshan significantly
exceeded subscriber and traffic growth targets, and through phases 2 and 3, accelerated its
capital expenditure program to meet strong demand. Cellular phones have been the only viable
method of providing country-wide communications services, and ADB assistance to Roshan
was vital to help develop Afghanistan’s mobile telecommunication sector and infrastructure.
 9

Table 3: Evaluation of the Roshan Cellular Telecommunications Project, phases 1–3

Indicator/Rating Partly
Unsatisfactory Satisfactory Excellent
Satisfactory
Development Impact X
Private Sector development X
Business Success X
Economic Sustainability x
Environmental, Social, Health & Safety Performance X
ADB Investment Profitability X
ADB Work Quality x
ADB Additionality x
Partly Highly
Unsuccessful Successful
Successful successful
Overall Rating x
ADB = Asian Development Bank.
Source: Asian Development Bank.

III. ISSUES, LESSONS AND RECOMMENDED FOLLOW-UP ACTIONS

A. Issues

31. The project deviated from the assumptions in the RRP in various ways:
(i) Projections of demand and average subscriber growth were underestimated.
Growth in the sector has been unexpectedly rapid, relative to similar underdeveloped
markets. One year after the rollout of Phase 1, subscriber growth projections were
revised upwards.
[CONFIDENTIAL INFORMATION REGARDING PROJECT ISSUES HAS BEEN DELETED]

B. Lessons and Recommended Follow-Up Actions

1. Lessons

32. Unmet demand and the liberalization process have been key drivers of growth.
The main driver of growth in telecommunications in Afghanistan has been the presence of
underserved populations. Mobile penetration has risen sharply in Afghanistan, from about 1.2%
at the end of 2004 to about 44% at the end of 2010. In addition, liberalization of the sector has
not only opened markets to foreign investment but also in improved regulation. The number of
operators has increased from 2 in 2004 to 4 in 2011.

33. Underserved markets tend to face very rapid subscription growth and fierce
competition, which results in significant decline of average revenue per user. The entry of
new GSM operators led to intense competition. These new players faced pressure to lower their
prices and increase their market share, resulting in a price war. Although this has been very
positive in terms of Roshan’s subscriber growth, it also placed pressure on network capacity,
requiring higher capital expenditure for Roshan to remain competitive.

34. ADB’s catalytic role. ADB’s provision of PRG support was fundamental in mobilizing
financing from commercial sources to ensure optimum and timely financial closure for the
project. The project has had a significant development impact through job creation,
infrastructural support to other industries, capacity building, and community development
through provision of social amenities, generous support to colleges, and donations to charitable
causes.
10

[CONFIDENTIAL INFORMATION REGARDING PROJECT LESSONS HAS BEEN DELETED]

2. Recommendations

35. Estimates of demand potential and dynamics in underserved markets should

consider that demand is likely to outstrip projections. In underdeveloped markets, the
subscriber base tends to grow very rapidly. Financial scenario analysis should allow for
significant variations in subscriber growth and also anticipate a phased network rollout.

36. Roshan’s revenue potential should be derived from new generation and value
added services. The standard voice market in Afghanistan has reached maturity, therefore
data services offer the best potential growth. Roshan is currently the leading data provider,
covering about 32 provinces with General Packet Radio Service (GPRS) and 11 with Enhanced
Data rates for GSM Evolution (Edge). While the company enjoys a leadership position, it is likely
that it will face new competitive challenges over the next few years, as the other operators
attempt to wrest leadership from the company. Roshan must continue to expand geographically
and keep up with the latest mobile technologies, including 3G, in order to remain competitive.

37. Project implementation should establish closer working relationships with the
community in order to mitigate security risks. The most effective mitigation measure has
proven to be Roshan’s close working relationship with local communities, which has included
employing locals to provide security services. Roshan’s community activities, such as the
construction of water wells, have further convinced local communities of their stake in the
success of the business, and enhanced the security of the infrastructure.

38. ADB should promote the use of guarantees to catalyze financing in fragile and
conflict-affected countries. Given the high political and regulatory risk in fragile and conflict-
affected countries, ADB's credit enhancement products have the potential to give confidence to
investors and commercial banks, thus leveraging private sector investment.

[CONFIDENTIAL INFORMATION REGARDING RECOMMENDATIONS HAS BEEN DELETED]


PRIVATE SECTOR DEVELOPMENT INDICATORS AND RATINGS: INFRASTRUCTURE
Impact of the Project
1. Beyond Company Impact
1.1. Private sector expansion.
Contributes as a pioneering or high-profile
project to facilitating or preparing for more
private participation in the sector and
economy at large
1.2. Competition. Contributes new
competition pressure on public and/ or
other sector players to increase efficiency
and improve access and service in the
industry
1.3. Innovation. Demonstrates efficient
new products and services, including
areas such as marketing, distribution,
tariffs, production, and technology; and
ways to cover or contain cost, manage
demand, etc.
Appendix 1 11
Ratings
Impact to Potential Impact Combined Justification/
a
Date (Sustainability) and Rate Annotations
Risk to its Realization
b
Rating Rating Riskc
Excellent Excellent Low Excellent Roshan's Phase 1 expansion was
the first private sector investment
of its kind in Afghanistan in almost
30 years. The transaction has had
a strong demonstration effect,
showing that mobile
communication is commercially
viable in Afghanistan.
Excellent Excellent Low Excellent The introduction of Roshan in
Afghanistan fostered increased
competition. Before the launch of
Roshan, 2 operators controlled the
telecommunications market: the
state-run, fixed-line operator,
Afghan Telecom, and AWCC,
which is owned by an expatriate
Afghan (80%) and the Ministry of
Communications (20%). AWCC
faced very little competition from
Afghan Telecom due to the very
poor performance of the latter. In
2011, Afghanistan had 4 private
cellular network operators, AWCC,
Etisalat, MTN, and Roshan, plus
the state-run Afghan Telecom.
National retail tariffs dropped from
about $0.30/minute in early 2003
to about $0.09/minute in 2011,
with some operators offering
promotional or off-peak national
tariffs as low as $0.03/minute.
Excellent Excellent Low Excellent The project has helped modernize
and expand the
telecommunications network in
Afghanistan. It has also allowed a
larger part of the country’s
population to access advanced
technologies and applications. In
particular, the project launched M-
Paisa, which enables individuals to
send money to other mobile users
(including non-Roshan), receive
and repay loans, receive money
from other Roshan mobile
customers, purchase Roshan
airtime, and pay for services and
goods.
 12 Appendix 1
1.4. Linkages. Relative to investments,
contributes notable upstream or
downstream linkage effects to business
clients, consumers, suppliers, key
industries, etc. in support of growth
1.5. Catalytic element. Contributes by
including pioneering and/or catalytic
finance, mobilizing or inducing more local
or foreign market financing and/or foreign
direct investment in the sector
1.6. Affected laws, frameworks,
regulation. Contributes to improved laws
and sector regulation for PPP,
concessions, joint ventures, and BOT
projects; and to liberalizing markets as
applicable for improved sector efficiency
2. Company Impact with Wider
Potential
2.1. Skills contribution. Contributes to
new strategic, managerial, and operating
skills with actual or potential wider
replication in the sector and industry
Satisfactory Satisfactory Low Satisfactory Roshan has promoted linkages
with local enterprises through its
network of contractors,
distributors, and resellers.
Excellent Excellent Low Excellent Roshan represents the first
transaction in the sector using
foreign sourced financing, at a
time when foreign exchange loans
and the capacity for private
political risk insurance were
limited. Total projected investment
into the sector at the end of 2006
(including license fees and
network expansion investments) is
estimated to be
about $500 million.
The introduction of Roshan, as the
second mobile
telecommunications operator (in
2003), had a direct impact on the
establishment of the interim TRAB
in 2004. TRAB was later replaced
by ATRA in 2006.
Satisfactory Satisfactory Low Satisfactory Roshan embarked on a series of
technical training and staff
development programs including
in telecommunication, English
language, financial management,
marketing and logistics, and
customer relationship
management. As June 2010, 809
Afghan nationals had received
functional and soft-skills training.
In 2009, Roshan introduced the
Afghanization program. As of
2011, Roshan employed 1,210
permanent workers, of which 186
were women, and 93 temporary
workers of which 65 were women.
The company provided capacity
building, external training, and
educational support for the
workers.
 Appendix 1 13

2.2. Other. Excellent Excellent Low Excellent Roshan is the largest single
taxpayer in Afghanistan. Roshan
has also generated additional
financial resources for ATRA
through regulatory fees,
contributing to its financial
autonomy.
It is estimated that operators have
contributed $70–75 million to the
TDF. The project has also
successfully brought about
incremental development
outcomes, including contributing to
social programs, particularly in
health and education. Soup
kitchens contribute daily meals for
children during weekdays. Roshan
delivered over 2 million meals
during 2004–2010. The company
sponsored the education of 189
children during 2010, and
completed the construction of
Hassandara Olia School, serving
over 1,000 students. Drinking
water and sanitation facilities were
provided to schools serving 1,680
children.
3. Overall PSD Rating. Unsatisfactory, Excellent Excellent Low Excellent Overall, the impact of the project
partly satisfactory, satisfactory, and on private sector development is
excellent. The rating is not an arithmetic considered excellent. The launch
mean of the individual indicator ratings, of Roshan and its subsequent
and does not have fixed weights. Actual expansion invigorated the
positive or negative impacts, future telecommunications sector and
impacts, and risks to its realization need to contributed to its restructuring.
be considered.
ADB = Asian Development Bank, ATRA = Afghanistan Telecom Regulatory Authority, AWCC = Afghan Wireless Communications
Company, BOT = build, operate, and transfer, PPP = public–private partnership, PSD = private sector development, RRP = report
and recommendation of the President, TDF = Telecom Development Fund, TRAB = Telecommunications Regulatory Board of
Afghanistan.
a
The combined rating should weigh future impact and risk to its sustainable realization.
b
Unsatisfactory, partly satisfactory, satisfactory, and excellent. The rating is not an arithmetic mean of the individual indicator ratings,
and these have no fixed weights. Consider already manifest actual impact (positive or negative) and the potential for impact as well
as risk to its realization.
c
Rating scale: Risk: high, medium, modest, and low.
Sources: Asian Development Bank and Roshan estimates.
14 Appendix 2

SOCIAL IMPACT

1. The soup kitchens set up by Roshan provide daily meals for children during weekdays.
Roshan delivered over 2 million meals during 2004–2010. The company sponsored the
education of 189 children through “Roshan brings Roshan”. During 2010, the company
completed construction of Hassandara Olia School, an 8-classroom school in Farza district,
serving over 1,000 students. Drinking water and sanitation facilities were also provided to some
girls and mixed schools, serving 1,680 children.

2. Roshan built a center in Kabul offering girls and boys access to sports and youth
development facilities. The company funded the drilling of 19 water wells in 2009 and 28 wells in
2010. In 2011, 22 wells were under construction, including 5 wells put into operation serving
about 115,000 beneficiaries. Roshan has planned 16 children’s playgrounds to serve over
25,000 children across the country, with 4 playgrounds completed in 2010.

3. The company also developed e-activities which included (i) the One Laptop Per Child
(OLPC) program, (ii) Roshan Community Domes, and (iii) Malomat, which is an agricultural
market information database, accessible through any mobile phone in the country. The Malomat
pilot program was launched on 10 July 2011, providing price information to farmers and traders
on 25 agricultural commodities across 10 markets in Afghanistan and 1 market in Pakistan, with
586 registered participants. By 2009, the OLPC had delivered laptops to six schools for students
of grades 4, 5, and 6. In 2010, the program was extended to another six schools. Sites have
been selected for the installation of 15 Roshan Community Domes, e-learning centers equipped
with solar panels to power laptops.

4. Active social projects include a state-of-the-art medical and dental clinic. In 2007, the
first phase linked the French Medical Institute for Children in Kabul to the Ministry of Public
Health by videoconference. In 2009, the second phase of the project allowed for digital transfer
of medical images and the third phase, which is ongoing, allows for access to e-learning, e-
consultation, video conferencing, teleradiology, and teleconsultation with Faizabad Hospital.
Roshan Clinic, which contains 100% Afghan staff, continues to grow and provide medical,
dental, and laboratory services to communities and partners.

5. Furthermore, the company has designated specific office departments responsible for
workplace and employees’ health and safety.